Commerce lobby backs rate cap law repeal plan

The Kenya National Chamber of Commerce and Industry (KNCCI) has backed the proposal to repeal the commercial lending rates cap law, arguing it will boost flow of credit to small businesses.

The business lobby reckons a review of the cap will help manufacturers expand production and ultimately ease unemployment that currently stands above 40 per cent.

“We expect the removal of the cap will provide an added incentive to banks to loosen risk considerations before extending credit to SMEs and this will translate to increased access to credit by businesses,” Richard Ngatia, the new KNCCI chairman, said in a statement.

Introduced in September 2016, the law limits lending rates to four percentage points above the central bank rate, now 9.0 per cent and was expected to cut the costs of credit for businesses and private consumers, boosting access to loans.

The Treasury Cabinet Secretary, Henry Rotich, in his budget statement last week proposed repealing the cap, arguing it was discouraging banks from lending to customers they considered too risky.

Private-sector credit expanded by 4.9 per cent in the year to April, the Central Bank said, well below the ideal growth rate of 12 percent to 15 percent.

In March, the High Court gave Parliament a year to redraft the law capping rates, saying the original one was not in line with the Constitution. A similar attempt to remove the cap last year was rejected by lawmakers.

The chamber has also backed the proposed creation of a State-sponsored credit guarantee scheme to help SMEs access loans as well as consolidation of Uwezo Fund, Youth Enterprise Development Fund and Women Enterprise Development Fund into Biashara Kenya Fund.